Debt settlement refers to the settlement with your creditor where he has agreed to accept a less amount in full settlement of the amount you owe to him. In other words, it also means that the creditors won’t hound you anymore for its money. Debt settlement companies act as negotiators who negotiate your settlement with the creditors.
It seems to be a good deal, but it might even be risky due to the following reasons:
- The option of the settlement of debt can destroy your credit.
- To settle may take a long period,i.e. from 2 to 4 years.
- This alternative can be expensive.
What is the working of debt settlement?
The work of settlement of debt comes into play only when you have many late or skipped payments and also collection accounts. No creditors or collector will accept a lesser amount unless there is a reason to believe that you can pay a full amount what you originally agreed to.
Debt settlement agencies will negotiate with your creditors to pay a lesser amount, especially on the unsecured debt like the credit cards.
Risks associated with a debt settlement
Given below are some of the risks associated with it:
- Penalty fees and late charges continue to accrue on you.
- It always doesn’t guarantee a successful process.
- You might be required to pay additional fees apart from the settlement fees like setup and monthly expenses.
- Your credit might even take a hit.
- The debts which are forgiven may be taxable as that is regarded as an income by internal revenue service.
If you require services regarding the settlement of debt, visit us at Ooraa and get a smooth settlement of your debts with our help.